Credit control (also sometimes referred to as ‘Credit management’) is a method employed by businesses, manufacturers and retailers in order to secure good cash flow. Credit control helps to promote good credit amongst those who have good credit history, and deny it to those who have poor credit. The overarching aim is to increase sales by allowing buyers to pay over time, and in turn, minimise bad debts. Credit control is an essential component in big business and profitability.
Credit control can be an expensive cost to a business, if they elect to do it internally (by hiring an experienced credit controller). The suitability of hiring a credit controller varies from business to business; some businesses with many invoices each month may elect to hire a specialist to deal with the debts. Other businesses with fewer invoices may find hiring a credit controller to be an unnecessary expense, and elect to outsource their credit control to a credit control company in London.
The ability of a credit controller or company to assess the suitability of potential borrowers lies largely in their effectiveness when judging the creditworthiness of the customers. Though this task may be difficult and sometimes costly, it is far easier and more cost-effective than chasing up unpaid bills from borrowers who do not pay.
Creditworthiness is monitored by credit rating agencies, such as Equifax, Experian and a handful of others. They value creditworthiness –and assess the likelihood of a borrower defaulting on their debt obligations- by considering factors such as repayment history, current debt level, assets, liabilities, transience, employment status, among other factors.
Hiring an in-house credit controller (or debt collection department) can be a great expense to the company (the average starting wage for an inexperienced credit controller is around £20,700 a year). Bear in mind, this cost is constant, irrelevant of how many overdue accounts (or indeed, the lack of) the business has; combined with the fact that the cost of hiring a credit controller is an internal cost, it cannot be added to the debt as an additional cost. For this reason, many businesses elect to outsource their credit control to an external company; this can help to minimise their costs, and ensure they are only paying for what they need to. Specialist credit control companies also tend to be better at collecting unpaid debts.
The costs of outsourcing your credit management can vary from company to company; some companies charge a percentage of the total amount of money you wish to reclaim, others charge a fixed fee based on the amount (for example £250.00 per £10,000 of invoicing), some may charge based on quantity (for example £250.00 per 250 invoices), others may charge a variable fee based on the quantity of clients (for example, £1.00 per client), and others may charge based on the level of contact (for example, £1.00 per contact with client).
Some agencies work on a ‘no win-no fee’ basis, with a percentage taken for the final amount collected (between 10% and 20%).
Companies such as http://racingcreditcontrol.co.uk/ use effective, pragmatic methods of collecting unpaid bills from clients. They begin by simply contacting the client to inform them of their debt and request payment within 7 days; this is quite effective when clients have simply been careless and may have forgotten their obligations. If Payment is not received, a second letter will be sent. From that point on, polite but persistent communication is made with the clients to request payment.
Outsourcing your credit management helps to reduce the stress of dealing with late payers; by putting the task in the hands of a specialist company, you can not only save yourself money but also streamline your company and improve cash flow, allowing you to invest in other areas of your business.